Australia's First Home Guarantee: Buy With 5% Deposit, No LMI

Skip the 20% Deposit (and the $20,000 Insurance Premium)

Normally, if you buy a home in Australia with less than a 20% deposit, your lender charges Lenders Mortgage Insurance (LMI) — a one-off premium that can cost $10,000-30,000 depending on the loan size. LMI protects the bank, not you — but you pay for it.

The First Home Guarantee (formerly First Home Loan Deposit Scheme) changes the equation. The federal government, through the National Housing Finance and Investment Corporation (NHFIC), guarantees up to 15% of the property value. This means you can buy with just a 5% deposit and pay zero LMI.

On a $600,000 property, skipping LMI saves approximately $15,000-20,000 that would otherwise be added to your loan.

How It Works

1. You save a 5% deposit (e.g., $30,000 on a $600,000 home)
2. You apply for the First Home Guarantee through a participating lender
3. If approved, the government guarantees the gap between your 5% deposit and 20%
4. The lender doesn't charge LMI because the government guarantee reduces their risk
5. You buy your home with a standard mortgage — the guarantee isn't a loan, grant, or extra debt

You still make repayments on 95% of the property value. The guarantee doesn't reduce your loan — it just removes the LMI requirement. But removing $15,000-20,000 from your upfront costs (or from being capitalised into your loan) is a significant saving.

Eligibility Criteria (2024-25)

Income caps:

• Singles: taxable income up to $125,000/year
• Couples: combined taxable income up to $200,000/year

Property price caps (vary by location):

Location	Price Cap
Sydney	$900,000
Melbourne	$800,000
Brisbane	$700,000
Perth	$600,000
Adelaide	$600,000
Hobart	$600,000
Regional NSW	$750,000
Regional VIC	$650,000
Regional QLD	$550,000

Check the NHFIC website for the complete list — caps are updated periodically.

Other requirements:

• You must be an Australian citizen aged 18+
• You must be a first-home buyer (never owned property in Australia)
• You must live in the property (owner-occupier, not investment)
• Available for both existing properties and new builds

Places Are Limited — Apply Early

The scheme has 35,000 places per financial year (July to June). Places are allocated on a first-come, first-served basis through participating lenders. In previous years, the scheme has been fully subscribed before the financial year ends.

How to apply:

1. Check eligibility on the NHFIC website (nhfic.gov.au)
2. Contact a participating lender — not all banks participate. Major participants include NAB, CBA, Westpac, and several smaller lenders and mortgage brokers.
3. Apply for the guarantee through the lender as part of your home loan application
4. The lender submits the guarantee application to NHFIC

Apply as soon as you're ready to purchase. Don't wait until you've found a property — you can get pre-approved for the guarantee and then shop.

Stacking With Other First-Home Benefits

The First Home Guarantee stacks with several other schemes:

First Home Owner Grant (FHOG) — State/territory grants for first-home buyers, typically $10,000-30,000 for new builds (varies by state). This is actual cash, not a guarantee.

Stamp duty concessions — Most states offer stamp duty discounts or exemptions for first-home buyers below certain price thresholds. In NSW, for example, first-home buyers pay zero stamp duty on properties under $800,000.

First Home Super Saver Scheme (FHSSS) — Lets you salary-sacrifice up to $15,000/year into super and withdraw it for a home deposit, benefiting from the lower super tax rate (15% vs your marginal rate).

Example stack for a $600,000 new build in QLD:

• First Home Guarantee → No LMI (saves ~$15,000)
• First Home Owner Grant → $30,000 cash grant
• Stamp duty concession → Save ~$10,000
• FHSSS withdrawal → $50,000 at concessional tax rate

Combined, these schemes can reduce the effective cost of entering the market by $50,000-100,000.

The 5% Deposit Reality Check

A 5% deposit is much more achievable than 20%:

Property Price	5% Deposit	20% Deposit
$500,000	$25,000	$100,000
$600,000	$30,000	$120,000
$700,000	$35,000	$140,000
$800,000	$40,000	$160,000

At a saving rate of $1,500/month, a 5% deposit on a $600,000 property takes 20 months. A 20% deposit takes 6.5 years. The First Home Guarantee doesn't just save you LMI — it gets you into the market years earlier.

Important Considerations

Higher repayments. Borrowing 95% means a larger loan and higher monthly repayments than borrowing 80%. Make sure you can comfortably afford the repayments, including a buffer for interest rate rises.

Less equity initially. With only 5% equity, a small price drop puts you in negative equity. This is only a problem if you need to sell — if you're planning to live there long-term, short-term price fluctuations don't matter.

Refinancing restrictions. The guarantee applies to your initial loan. If you refinance within the guarantee period, you may need to pay LMI on the new loan unless you've built enough equity. Check with NHFIC before refinancing.